Whole Life Insurance Pros and Cons List
You may already be aware of whole life insurance, but you may not be fully aware of the pros and cons involved in selecting a whole life insurance policy. It is important for a client to know exactly what their needs are and how a whole life insurance policy plays into them before selecting such a policy.
This is a hugely important topic to many, and as such, knowing the pros and cons is pivotal. Without the proper knowledge, you could end up making a decision that adversely affects the quality of life for you and your loved ones for years to come. While whole life insurance may be the best choice, it is not always the best choice for you.
The following list will lay out all of the advantages and disadvantages that come with a whole life insurance policy and give consumers the opportunity to make the most informed decision possible. There are a few key differences between whole life insurance and other insurance policies that will also be touched upon, so read on to learn more.
List of Pros of Whole Life Insurance
1. Cash Value Accumulation
Most life insurance policies only provide benefits to their holders after they have passed away. Their families and heirs are the ones who will typically receive the benefits and the person who holds the policy is usually paying their monthly premiums with this idea already in mind.
However, with a whole life insurance policy, the client is also able to access a helpful additional feature, known as cash value accumulation. This means that a piece of the monthly premium that you pay for your whole life insurance policy is also set aside. An agreed upon percentage of the whole life insurance policy premium goes towards the client’s cash value accumulation.
So what does this mean for the client? It allows them to save money and watch their interest build over the course of time. The account used in a whole life insurance policy is an interest bearing account, which gives the policy holder an additional cash reserve to tap into in case of emergency.
Or, they can simply allow the money to pile up and decide that they will pass it down to their benefactors after they have deceased. This provides an extra source of income, especially in situations where the whole life insurance policy holder is the household’s primary breadwinner.
2. Consistent Monthly Premiums
Other life insurance policies cannot guarantee the same monthly premiums to those who sign up for them. The whole life insurance policy covers the recipient for the entirety of their life and locks them into paying the same premium, month after month. There are no surprises on the horizon and even though the premiums tend to be a little more expensive than a variety of other life insurance policies, the policy holder does not ever have to worry about an unscheduled increase.
While this may not seem palatable to some, it is important to remember that life insurance policies do not become any less expensive as the years go on. On the contrary, other life insurance policies tend to experience a dramatic spike as the person ages. A term policy eventually expires, leaving the client subject to the whims of rapidly increasing premiums.
For those who wish to ensure their family’s ability to continue to pay bills over the long term, these policies are considered to be their best bet. Obtaining a policy in your younger days and allowing it to run its course is cheaper in the short run, but you will be stunned by the skyrocketing costs of renewing the policy once you have reached middle age. Whole life insurance delivers protection to your family that does not ever have to be renewed.
3. Ability To Borrow Money
One of the best parts about the aforementioned cash value accumulation feature is that a person who is strapped for cash can actually borrow money against their personal amount. Depending on your account and the terms and conditions agreed upon with your insurance provider, you are able to borrow from your cash value accumulation stash as needed and do so at an interest rate that is incredibly favorable.
Even better, after a certain number of years have gone by, the money is yours to use as you see fit. Those who do not wish to deplete their accounts can also repay the money, so that their borrowing does not affect the death benefits of their loved ones in an adverse manner. Repaying the money enables the policy holder to experience the best of both worlds.
In addition, the holder of the policy can borrow the money, without having to worry about any sort of tax related repercussions. Any money that is in your cash value accumulation account is able to be removed without tax penalties.
List of Cons of Whole Life Insurance
1. Costs More Money Upfront
While there are a variety of financial benefits to be reaped from a whole life insurance policy, there are also certain financial setbacks that must be addressed. A whole life insurance policy holder will end up spending more over the life of their policy than those with term life insurance or other similar policies.
The reason for the increased expense is due to the fact that a portion of your monthly premium payments are used to provide additional funds through the cash value accumulation account. A person who is not going to need to borrow money over the course of their life insurance policy may decide that this account is an unnecessary feature.
It should be obvious to most that larger policies come with much larger monthly payments. That is why it is crucial for life insurance policy shoppers to read every last word of the fine print, in order to ensure complete and total understanding of their agreement with the insurer. There may be exclusions in your policy that you are not aware of.
2. Lower Interest Rates
If you are a person who is able to save money with ease, then a whole life insurance policy may not always be the best choice for you and your loved ones. A person who is seeking a great return of their potential investment should probably look towards other areas of the money market for better opportunities.
The more savvy you are with your own personal investments, the less need you will have for a cash reserve that you can borrow from without experiencing severe penalties. While whole life insurance policies do provide a great safety net against a variety of financial quagmires, they are not advisable for those who have a strong savings account and a great portfolio of diverse investments.
The interest that a policy holder can earn through their cash value accumulation account pales in comparison to what a person can earn on the open market. A client who has already had success in the stock market or with varied personal investments will not need a whole life insurance policy to keep them safe, for they have already done the legwork on their own.
3. Policies Are Not Flexible
Flexibility is a prized asset for many when they are making this crucial decision. A whole life insurance policy is not the best selection for those who seek maximum flexibility. A universal life policy or even a term policy will offer much more flexibility to people who are in need of it.
There is no way for the policy holder to know certain key facts about their account, such as the percentage of their monthly premium that is put towards the cash accumulation feature or the percentage that is directly applied to their death benefits package.
When shopping for a policy, you will typically want some level of decision making ability when it comes to any sort of needed alterations. Universal policies provide much greater flexibility to their holders, unlike whole life insurance policies that essentially lock you into a iron clad agreement for their entirety. Need flexibility on paying your premiums and the ability to alter death benefits as needed? Then a whole life insurance policy is not for you.